What is Voluntary Administration?
Voluntary Administration (VA) is a way for companies in financial distress to gain some breathing space from their creditors. The process is designed to help companies that are unable to pay their debts, by enabling them to either: (1) make a payment arrangement with their creditors, or (2) be quickly and inexpensively placed into liquidation. The purpose of the legislation (see Part 5.3A of the Corporations Act 2001) is to maximise the opportunities for a company to continue to exist, or to provide a better return to the company’s creditors than would be likely be the case in an immediate winding up.
How is Voluntary Administration initiated?
The process starts with a meeting of directors, where an Administrator is appointed to control the company’s affairs. The administrator convenes a first meeting of creditors within 5 days and a second meeting, to decide the company’s future, within 28 days. The creditors choose the option that they believe will best serve their interests; the company will either be entered into liquidation, or execute a deed of company arrangement, or be handed back to the Directors.
Why would anyone choose Voluntary Administration?
Voluntary administration allows a company to satisfy its creditors by taking a cooperative approach. It can enable a company to trade out of short term difficulties caused by either short term cash flow restrictions or by one-off financial problems, by imposing a delay on creditors from enforcing their claims. It can also provide for an opportunity to restructure the company, if this is appropriate.
What are the steps toward Voluntary Administration?
The company’s directors appoint a voluntary administrator to control its affairs. The administrator convenes two meetings of creditors. At the second meeting (about 4 to 6 weeks after the appointment), the creditors get to choose the option which they believe will best serve their interests. The company will enter into liquidation, or execute a deed of company arrangement, or be handed back to the Directors.
How does Voluntary Administration affect unsecured creditors?
A moratorium on enforcing their claims is imposed on the unsecured creditors. Any applications to wind up the company are usually adjourned, and as no provisional liquidator can be appointed without permission of the Court, all proceedings or enforcements against the company’s property are placed on hold.
How does Voluntary Administration affect secured creditors?
Secured creditors have 13 business days from the day of appointment to exercise their security. After that, so that the administrator has some certainty during the administration period, they are bound from making claims for the duration of the voluntary administration period.
What are the administrator’s powers in a Voluntary Administration?
The administrator assumes responsibility to perform all functions and exercise all powers that the company had or could exercise, if the company was not under administration. The company Directors and officers lose their powers and the administrator assumes control of the company’s business, its assets and its affairs. He or she may carry on with the business, manage the company’s property and affairs, and dispose of any part of the business and/or its property as he or she sees fit.
What are the administrator’s duties in a Voluntary Administration?
The administrator is obliged to:
• Take control of the company’s assets
• Investigate the company’s affairs
• Report to ASIC of any alleged offences
• Assist the directors to make a proposal for a deed of company arrangement
• Report to creditors on which courses of action serve their interests best, and
• Convene all the meetings of creditors that are required to decide the future of the company.
Do administrators of a VA consider preferential payments?
Preferences are considered in a preliminary way, but no recovery action is taken. The administrator is duty bound to investigate potentially voidable transactions, but only to carry out sufficient investigations to justify any recommendations in making the report to creditors, and has no authority to start any recovery proceedings, these being solely within the scope of a liquidator, if one should be appointed.
How does Voluntary Administration affect retention of title clauses?
Retention of Title (ROT) clauses are bound by the moratorium imposed on creditors as a consequence of the voluntary administration and they cannot immediately collect their goods. Administrators cannot use or dispose of property if another person, including under a Retention of Title (ROT) clause, owns it, unless (1) they have the written consent of the ROT holder; or (2) with permission of the Court. Administrators must account fully to the ROT holder for the costs of the stock.
How are landlords affected by Voluntary Administration?
Landlords are bound by the moratorium that restricts all creditors. The administrator is allowed to occupy the property for up to seven days without paying rent, but then has to pay rent for the remainder of the voluntary administration period. The administrator’s liability ends at the end of the voluntary administration, or when the premises are vacated. The administrator will not be liable for rent if he or she does not have possession of the property, however this provision does not stop the company’s continuing liability for paying the rent.
How are Director’s Guarantees affected by in a Voluntary Administration?
Creditors that hold third party directors’ guarantees are similarly bound by the moratorium during the period of the administration, but the guarantees remain and may be enforced once the voluntary administration ends.
Can the Voluntary Administrator pay dividends?
Voluntary administrators do not have the authority to pay dividends.
What happens at the first meeting of creditors in a VA?
The administrator must convene the first meeting of creditors within eight business days after the appointment. The Corporations Act requires to aspects to be considered; (1) whether the creditors wish to replace the administrator with another administrator, and (2) whether the creditors wish to elect a number of representatives to form a committee which will advise and assist the administrator.
What happens at the second meeting of creditors in a VA?
The creditors decide the future of the company and a second meeting, which is normally held between 20 to 30 business days after the appointment. The administrator issues a report to the creditors prior to the meeting, detailing the results of investigations, any alleged offences, and the potential viability of each of the available options.
How much detail must be included in a Deed of Company Arrangement?
The first draft deed submitted to the administrator is usually in summary form. However, as the final deed is likely to include many more provisions than the original proposal, a full draft is normally tabled at the meeting of creditors. So that they are aware of all of the terms, creditors should insist on a full draft, or at least as near to the final draft as is practicable, before deciding upon its contents. Creditors’ meetings may be adjourned to enable time for a fuller draft deed to he produced.
What options are available to creditors?
The creditors’ Meeting may pass a resolution for one of the following: (1) to accept a proposed deed of company arrangement; (2) to end the voluntary administration and pass the company back to the directors; or (3) to liquidate the company.
How is voting carried out at meetings of creditors?
Provided there is a clear numerical majority present at a meeting, votes may be carried “by the voices”. Each creditor or proxy is entitled to one vote. If this method is inconclusive, or if it requested by creditors, the vote can be put to a poll. A poll is determined on a majority in both numbers and in value. In the event of a tie (for example where the majority of numbers votes in one direction and the majority of value votes in another), the administrator may, but is not required to, exercise a casting vote and make the final decision, otherwise the resolution will fail.
Are creditors required to decide then and there?
If necessary for further investigations, or for a proposed deed of company arrangement to be amended, the second meeting of creditors may be adjourned for up to sixty days.
How much does Voluntary Administration cost?
The cost of Voluntary Administration varies according to the amount of work that needs to be carried out. There are two types of work costs; “Statutory” and “Variable”. Statutory costs are always incurred, regardless of the size and complexity the work. These are:
• Notifying ASIC
• Issuing notification to creditors
• Issuing notification to utilities and statutory authorities, such as ATO
• Conducting the first meeting of creditors
• Dealing with the enquiries of creditors
• Conducting preliminary investigations into preferential payments, insolvent trading and void transactions
• Preparing a report to creditors
• Conducting the second meeting of creditors, and
• Notifying creditors and the ASIC of the results of the second meeting of creditors.
Variable costs may include the following:
• Managing the trading the business during the period of the administration
• Dealing with secured creditors
• Dealing with lenders and finance companies
• Selling, collecting and selling some or all of the assets of the company or the business of the company
• More detailed investigations into potential recoveries, the ownership of assets and the viability of any proposal.
When does a Voluntary Administration end?
Voluntary administration ends with: (1) a deed of company arrangement being fully executed, or (2) the creditors resolving to wind up the company, or (3) the creditors resolving that the voluntary administration should end, or (4) the Court ordering that the administration is to end, or (5) the approved deed of company arrangement not being signed within 21 days of the second meeting, or (6) the period for calling the second meeting ending without the meeting having been called, or (7) the Court appointing a liquidator to the company.
How should a company that is under Voluntary Administration be described?
Companies are required by law to promulgate their voluntary administration status. If an administrator is appointed to manage the affairs of Acme Pty Ltd for example, the company should be described on its public documents as “Acme Pty Ltd (Administrator Appointed)”.
What is Voluntary Administration?
When a business is in a very difficult financial situation, it may choose to enter voluntary administration. The term sounds quite confusing to many at first, but in reality it’s quite a straightforward process that can potentially save a business from going into liquidation.
If a company gets to a point where a majority of its board of directors feel that it is no longer likely to be able to pay off the debts it owes to its creditors without outside interference, they will often vote in favour of triggering the company to enter administration.
This means that a third party will take over the management of the company in order to try and arrange a compromise with its creditors in order to ensure that it doesn’t go bankrupt.
Of course, it can’t be just any third party: the administrator must be a Registered Liquidator. Once they have been granted control of the organisation, they’ll work towards certain goals with the end objective of rescuing the company from the brink of liquidation.
These goals will include:
- Holding crisis talks with creditors,
- Investigating the company in order to advise creditors on options going forward,
- Working with the company’s directors to create a proposal for the creditors,
- Presenting the proposal to the creditors and working to ensure that a mutually agreeable arrangement is found.
Choose TurnAround Pros for Advice on Voluntary Administration
Here at TurnAround Pros, we’ve worked with many companies over the years in order to help them make sound financial decisions that steer them away from bankruptcy and liquidation.
There are a variety of paths which can be pursued, but in some cases the best option is to voluntarily enter into administration and work with your administrator to try to find terms that your creditors will agree to.
When you contact us, you’ll be able to arrange a free, no-obligation consultation with a member of our highly trained and experienced team. They’ll work closely with you to gain a thorough understanding of the particular financial situation your business is in; and, if they think it necessary, they may advise you to enter into administration.
After this, we’ll be able to offer you plenty of continued support and advice – and thanks to the outstanding reputation we’ve built over the years as one of Australia’s leading financial and debt advise specialists, you can rest assured that the advice you receive from us is honest, trustworthy and reliable – 100 percent of the time.
You can be confident that, over the years, we’ve worked with – and helped to save – companies in far worse financial situations than yours currently is. So don’t delay: simply get in touch with a member of our friendly and professional team today to find out more about our services and how we can help you rescue your company from the brink of bankruptcy.
With our professional help, you can be sure you’ll be able to turn your business around and move on to a brighter financial future in no time at all!
TurnAround Pros are Queensland's best professionals for financial distress. If your business is becoming insolvent or you are facing bankruptcy, you are not alone. Work with debt advisors who will help you find alternatives to bankruptcy. Visit our website or call us on 1300 518 070 to learn more.- Read Less